Licensing Agreements

by:  Kathleen Kuznicki, Esq.

Persons or businesses that own intellectual property have certain rights in that property.  Intellectual property includes copyrights, trademarks, patents and trade secrets.  Owners of these properties are free to give as little or as many of their rights in these assets to other parties.  This is done through licensing agreements.  In these agreements, an intellectual property rights owner (licensor) authorizes certain rights to another (licensee) in exchange for an agreed payment in the form of either a fee or a royalty, or some combination of both.   A licensing agreement does not convey ownership; ownership is conveyed through an assignment in which all the rights to an intellectual property are given to another.

When/Why should you be a licensee?

  • If you have a product* that potentially infringes another’s intellectual property
  • To improve your product by combining it with another’s intellectual property
  • To cut down on R&D costs and the time; commercializing your product earlier
  • To expand your business by utilizing another’s intellectual property

(*Product is defined broadly as anything that falls under intellectual property such as but not limited to: artistic or literary works, equipment, technology, know how, merchandise with another’s branding, etc.)

When/Why should you be a licensor?

  • If you have valuable intellectual property that is desirable to third parties
  • If you have intellectual property  that you are not utilizing
  • To increase your revenue through licensing fees or royalty payments
  • To expand the existing market for your business.

What are some of the provisions that should be included in a license agreement?

  • A clear definition of the intellectual property that is the subject matter of the agreement
  • Any use or field of use limitations
  • Whether the agreement is an exclusive or a non-exclusive license
  • Any territorial restrictions
  • Whether the agreement is perpetual or time limited
  • Ownership of the rights to any new intellectual property that might result from the agreement
  • Whether the licensee has the right to sublicense
  • Amount and structure of fees and/or royalty payments
  • Non-disclosure of confidential information provisions
  • Requirements for termination of agreement by either party

People try to use template licensing agreements found online or copied elsewhere to keep the cost of drafting an agreement low.  However, each licensing situation is unique; individual parties have distinct requirements that need to be fulfilled by their licensing agreements.  The terms of the agreement should be specific to the situation at hand.  Not ironing out precise details and utilizing broad or vague clauses from template agreements might ultimately result in in higher costs down the line for both parties, because a dispute might arise that ultimately leads to litigation.

Kathleen Kuznicki is a contributing writer to Exit Promise. Please visit www.exitpromise.com to view more articles by Kathleen.

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